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5 Steps for Finding New Customers

Ronald Brown is a successful startup CEO with an extensive background in technology and consumer marketing. His new book, Anticipate. The Architecture of Small Team Innovation and Product Success is available via iTunes, Amazon, Barnes & Noble, and Kobo.

The subject of finding customers is one of the most mysterious in business development. I’m often asked how the most successful companies do it, maybe in the hope that there's a secret or shortcut to success. Sorry to say, no silver bullet exists.

Even with large budgets, customer discovery is more art than science. Below are the five basic steps. The most important aspect of this process is to be very methodical in your approach. Knowing where you’ve been is the only way to improve and repeat successes. Pay close attention to the details and record everything in a consistent format.

1. Classification Structure

The first step is to decide on a classification structure, better known as segmentation. You might have a product in mind, or a general concept, but sometimes, you might just be fishing — looking for a problem to solve in a market that seems attractive. That’s OK. Market segmenters are detectives.

What makes a market attractive? Maybe you see alignment with your idea or product. Or, maybe something about a segment strikes a chord and gets your creative juices flowing, knowing what you know about your company’s capabilities. Also, segment size is important: Why waste time if long-term financial gains aren’t possible?

The segment selection process can be intuitive, based on personal experience, or it can be driven by highly sophisticated segmentation tools that carve up the total market into standardized groups. (Lots of companies start with Standard Industrial Classification codes (SIC codes), a system for tracking the entire economy, managed by the U.S. Census Bureau.) Either way, at this point, you are simply making educated guesses about which ones might be a fit. You have no idea if the fit will materialize.

In emerging industries, segmentation can evolve quickly. When the iPad was first introduced, tablets were tablets. Then ereaders became a distinct category vs. general purpose. Then pricing tiers emerged. Now, industry analysts are breaking the market up into broad stroke vertical applications — education, health care, etc. — which will get subdivided further very soon.

2. Hypothesis Testing

With your evaluation structure in place, you now need to determine, one segment at a time, if there is really an opportunity you can address. You dig deeper from a research standpoint, paying particular attention to competitive offerings. Again, there’s a range of tools you can use. A consumer products company might do a formal, quantitative study, and a company selling to enterprises might set up personal meetings with senior executives. Major consulting firms, like McKinsey & Co. or the Boston Consulting Group, rely heavily on in-depth, one-on-one interviews in all of their projects. I’m working on a project in the tablet business right now, and you’d be amazed at how much you can learn from resellers.

What are you looking for? You’re identifying customer problems. They should be big ones — “pain points.” If a problem isn’t urgent and important, it’ll be difficult to create a meaningful competitive advantage. At the same time, you’re looking to see how your solution solves the problem. Is it dramatically better? Is it “demonstrable” (a very helpful ingredient when it comes to being socialized)?

If you’ve found a pain point in a large market you can address and there are no competitors (yes, it happens), you’ve stumbled upon an “unmet need,” one of the holy grails of new product development.

Segment by segment, you are testing a hypothesis related to fit or alignment: that you have something of value to offer a customer group. You are not just collecting information.

You’ll discover all kinds of things at this point, from a particular segment being a complete miss, to essential product features that must be added. Hypothesis testing never stops, even after you introduce your product. In fact, the best is yet to come. Once a product is in the market, learning based on actual usage will flow in. That’s why many in the new products field go to market with a “minimally viable product.”

3. Nuance Testing

Here’s the step that’s easy to overlook. All problems have context. In other words, when customers solve problems, they are affected by circumstances associated with timing and physical surroundings, and by the nature of the task itself. As a marketer, you won’t understand context by doing a survey, conducting a focus group, or talking to senior executives.

You understand context by experiencing customer problem solving yourself. To do that, you turn to customer immersion techniques. Did you know dairy farmers use tablets? To elegantly solve their problems, you better be willing to get up at 3 a.m. on a freezing morning. Some consumer goods companies even live with customers in their homes for a short period of time. Procter & Gamble, considered one of the best marketers in the world, uses such an immersion program called “Living It.”

4. Customer Stories

Hypothesis and nuance testing findings get captured as stories. They're much more descriptive than use cases in that they focus heavily on problem/solution decision making.

5. Solution Iteration

Tight product alignment with a customer is a matter of iteration. You put something out there (an idea, a prototype, an actual product), and you get feedback, and you go away and improve and refine. Your customer stories get more refined as well.

It’s highly unlikely that you’ll identify a pain point and address it perfectly in one fell swoop. In fact, to even try is highly risky, especially if you’re building hardware.

Most of the time and money wasted in new product development is related to late-stage rework, but you can avoid it by developing in small steps, ever tightening the alignment. This is what agile development is all about, and why it’s gaining so much in popularity in and outside Silicon Valley.

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